The Reserve Bank of India (RBI) is likely to undertake interest rate cut in third quarter of the current financial year, SBI Research, a division of the State Bank of India (SBI) said in a report.

The report highlights that India stands as a notable exception to the trend observed in emerging economies, where central bank rate actions often align with those of advanced economies. Despite this, structural shifts in global markets, particularly in the United States, are influencing monetary policies worldwide.

One of the key observations from the report is the structural changes unfolding in the US labour market, characterised by a co-existence of low unemployment rates alongside elevated job vacancy rates. This phenomenon, coupled with the tightening of US monetary policy, has led to a cooling of short-term inflation expectations, aligning with the Federal Reserve's target inflation rate of 2 per cent.

However, the report underlines that the US labour market's dynamics present a unique challenge, with low unemployment rates persisting alongside high job vacancies, defying conventional expectations. This structural shift is expected to endure until the end of 2025, influencing global monetary policies and economic strategies.

Moreover, the report sheds light on the surge in gold prices and demand, driven partly by central banks' increased appetite for the precious metal. This trend, coupled with rising non-mortgage interest payments in the US and distress sales in commercial real estate, reflects underlying complexities in the global economic landscape.

The report anticipates a rate cut by the Reserve Bank of India (RBI) in the third quarter of FY25. Despite moderate fuel prices, inflation is primarily being driven by food price dynamics, with CPI inflation expected to remain slightly above 5.0 per cent in the remaining months of FY24. The report forecasts a decline in inflation till July 2024, followed by a peak in September 2024 before decelerating.

Furthermore, the report highlights challenges and opportunities in liquidity management for the RBI, citing a decline in liquidity deficit since the last policy meeting. While deposit growth has rebounded, sustained credit growth momentum has widened the gap between deposits and credit growth, posing challenges for the banking sector.

Amid these dynamics, India has emerged as an attractive destination for foreign funds, with the highest inflows recorded in March. The report suggests that equity inflows currently dominate, but expects a potential surge in debt inflows, which could help in cooling yields on benchmark securities.